Meanwhile, exports collapse at fastest rate since 2009.
This would be hilarious, if it weren’t so serious: Frazzled politicians,
during a parliamentary session, lambasting the governor of their central bank
over its new negative interest rate policy. But this is what happened in
Japan.
Central-bank imposed negative interest rates have caused a lot of
financial mayhem. Since they’ve contaminated much of Europe, they’ve dragged
most major stock indices into a bear market. In the US, stocks fell hard as
well. The Nasdaq sidled up to a bear market before bouncing off and is now
down “only” 14% from its peak. The Russel 2000 is in a bear market, down
22.4%.
In Japan, stocks have gotten mauled since the Bank of Japan inflicted the
idea of negative deposit rates on the land three weeks ago, after Governor
Haruhiko Kuroda had repeatedly assured parliament that he wasn’t even
considering the idea. Despite a bounce earlier this week, the Nikkei is down
24% from its recent high.
It doesn’t matter that, under the BOJ’s three-tiered system, no deposits
qualify yet for the special treatment. It’s the idea that counts. It’s all a
mind-game.
And so on Thursday, Kuroda stood before Parliament to be lambasted from
all sides. According to DJ
Business News, he “found himself dodging a concerted attack in Parliament
from lawmakers who charged the policy was victimizing consumers and sending a
message of despair.”
Opposition lawmaker Shinkun Haku needled Kuroda: “Can you deny that banks
will put an additional burden on average depositors” by charging fees or
interest on deposits? “If you can’t deny it, don’t. It’s a yes or no.”
Kuroda dodged the jab the best he could, refusing to speculate on fees but
said that “there’s no chance that deposit interest rates will turn negative.”
He referred to the great things negative deposit rates have already
accomplished in Europe, that they encouraged lending, etc., etc., but had few
harmful effects. “Europe has much larger minus interest than the Bank of
Japan, and I haven’t heard of minus interest rates being applied to
individual depositors there,” he said, though we’ve heard of it. “Punishment
interest,” Germans called it.
Other lawmakers jumped into the fray.
“You have sent a message to the people that they had better watch out
because Japan’s economy is in trouble,” Communist Party lawmaker, Akira
Koike, threw at him.
Opposition lawmaker Motoyuki Odachi accused him “of sounding like a World
War II propaganda broadcast.”
Even ruling-party member Masahiro Ishida plowed into him. The policy was
hard to grasp, he said, and “it could have the opposite effect of confusing
the market.”
Confusing the market? Which market? The one that central banks are trying to manipulate with all their might? Yup, that’s the one. NIRP is “confusing” it. “Confusing” means: it’s sending it south. Everyone knows, the only correct direction is up, especially since the BOJ is buying ¥80 trillion ($700 billion) a year in government bonds and other securities, including equity ETFs and J-REITS, for the sole purpose of inflating asset prices.
Plunging stocks in Japan and around the world are not part of the plan. Nor is the uppity yen that, despite all efforts to crush it, has jumped against the dollar since the announcement of NIRP. Crushing the yen was supposed to increase Japanese exports so that they would pull Japan out of trouble. But exports too are plunging.
In the first half of 2015, exports still rose 7.9%. But then exports fizzled. They dropped 2.2% in October, 3.3% in November, 8.0% in December. And the Ministry of Finance just reported that exports in January plunged 12.9%, the biggest drop since October 2009!
Exports to China plunged 17.5%. Exports to Hong Kong – most of it for transshipment to China – plummeted 26.2%. Exports to all Asian countries fell. In nine of the 11 Asian countries listed, exports plunged between 15.8% (Malaysia) at the low end and 26.2% (China and Vietnam) at the high end. Yes, this report is one ugly dude!
So if negative deposit rates crush stocks, boost the yen, and wipe out exports, in addition to punishing savers, retirees, banks, and fixed-income investors like insurance companies, what good are they?
Is that why these policies weren’t gaining public support? DJ Business News cited an unnamed “official” who explained the phenomenon this way:
“Those who understand this policy are criticizing us, and those who do not are also criticizing us.”
And the public doesn’t care for them one bit. Sure, Japan Inc. gets cheaper loans to fund projects in Thailand or Vietnam. But Japanese society has a lot of retired folks who live off their savings and pension incomes. They’ve already gotten whacked by the consumption tax hike and price increases, while their interest incomes have disappeared and pension payments have stagnated. They’re planning on living long healthy lives. So they’ve tightened their belts, and that’s not great for the economy. But they’re in no mood to pay fees or interest on their savings.
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Confusing the market? Which market? The one that central banks are trying
to manipulate with all their might? Yup, that’s the one. NIRP is “confusing”
it. “Confusing” means: it’s sending it south. Everyone knows, the only
correct direction is up, especially since the BOJ is buying ¥80 trillion
($700 billion) a year in government bonds and other securities, including
equity ETFs and J-REITS, for the sole purpose of inflating asset prices.
Plunging stocks in Japan and around the world are not part of the plan.
Nor is the uppity yen that, despite all efforts to crush it, has jumped
against the dollar since the announcement of NIRP. Crushing the yen was supposed
to increase Japanese exports so that they would pull Japan out of trouble.
But exports too are plunging.
In the first half of 2015, exports still rose 7.9%. But then exports
fizzled. They dropped 2.2% in October, 3.3% in November, 8.0% in December. And
the Ministry of Finance just reported that exports
in January plunged 12.9%, the biggest drop since October 2009!
Exports to China plunged 17.5%. Exports to Hong Kong – most of it for
transshipment to China – plummeted 26.2%. Exports to all Asian countries
fell. In nine of the 11 Asian countries listed, exports plunged between 15.8%
(Malaysia) at the low end and 26.2% (China and Vietnam) at the high end. Yes,
this report is one ugly dude!
So if negative deposit rates crush stocks, boost the yen, and wipe out
exports, in addition to punishing savers, retirees, banks, and fixed-income
investors like insurance companies, what good are they?
Is that why these policies weren’t gaining public support? DJ Business
News cited an unnamed “official” who explained the phenomenon this way:
“Those who understand this policy are criticizing us, and those who do not
are also criticizing us.”
And the public doesn’t care for them one bit. Sure, Japan Inc. gets
cheaper loans to fund projects in Thailand or Vietnam. But Japanese
society has a lot of retired folks who live off their savings and pension
incomes. They’ve already gotten whacked by the consumption tax hike and price
increases, while their interest incomes have disappeared and pension payments
have stagnated. They’re planning on living long healthy lives. So they’ve
tightened their belts, and that’s not great for the economy. But they’re in
no mood to pay fees or interest on their savings.
So the BOJ has a tough job: Beyond the financial manipulations, it is, as
the DJ Business News put it, “struggling with a different and equally
hard-to-control force: public opinion.” That negative reaction against NIRP
from the public and the markets left the BOJ “baffled.”
That’s what it boils down to. These sorts of scorched-earth monetary
policies are a confidence game. People, particularly investors, need to
believe in them and in central banks as if they were divine forces, they need
to blindly and in unison follow their guidance, and not deviate or look at
reality, but when that leap of faith suddenly fails, all heck breaks loose.
And this is what we get: global trade is skidding south at a breath-taking
speed. Read… I’m
in Awe at Just How Fast Global Trade is Unraveling